Vodafone advantage worked against it in Japan

Mobile telecoms giant failed to think local

As Vodafone confirmed that it is in talks with Japan's Softbank Corp to sell its Japanese subsidiary, analysts said today that Vodafone's failure to adapt to local conditions had been its downfall in Japan. 

Paradoxically, Vodafone's apparent advantages as a giant global telecoms player actually worked against it in Japan's unusual mobile market, according to Neale Anderson, research director at UK-based telecoms consultancy Ovum. 

Winning a healthy share of the booming, and hugely profitable, 3G market in Japan has long been seen as key to the success of Vodafone KK since the European telecoms giant bought and renamed Japanese operator J-Phone in 2001.

Japan got an early start in 3G thanks to NTT's ground-breaking DoCoMo service, and approximately half of Japan's 100 million mobile phones are now 3G models. 

"Vodafone KK's 3G offering has failed to take off. This is a direct result of its decision to stop sourcing Japanese handsets for the local market, in favour of leveraging its global purchasing power," said Anderson.

"Unfortunately, the centrally purchased 3G handsets have been about two years off the Japanese pace in terms of design and performance, and customers have left in droves."

Because people do not like the phones Vodafone has been offering, only 2.8 per cent of Japanese mobile phone users had signed up for Vodafone's 3G service by the end of January.

Vodafone's two competitors in Japan's 3G market, leading mobile operator NTT DoCoMo and KDDI's Au service, sourced most handsets locally and both had approximately eight times as many 3G customers as the foreign-owned company.

Vodafone KK's line up of phones has been unusual in Japan for the prominence of foreign brands like Motorola and Nokia.

The operator announced a line of new phones with innovative features from local manufacturers like Sharp just last week, but the move seems to have come too late to save the loss-making Japanese operation. 

Softbank has also confirmed to reporters that it is in talks to buy Vodafone KK. The Japanese internet investment company will be in a favourable position if the sale goes ahead, Anderson commented, despite the entrance of new operators into Japan's 3G market this year.

This is because Softbank has ability to take advantage of its existing internet backbone and broadband services marketed under the Yahoo BB brand.

"This sale, if completed, would catapult Softbank to a very strong number three position immediately, and remove the need for a lengthy and expensive network rollout. DoCoMo and KDDI have ample cause for concern," said Anderson.

Vodafone KK has approximately 15 million subscribers, including about 2.5 million 3G users.

Japanese media reports, citing unnamed sources, put the potential value of the Vodafone KK sale at $13bn to $17bn, assuming that Vodafone elected to sell all of its 98 per cent stake. 

The sources indicated that Softbank does not plan to use equity financing for the buyout.